UN says Myanmar's foreign exchange gains on aid "unsustainable"

Jul 25, 2008, 10:05 GMT

Bangkok - United Nations officials on Friday downplayed the extent of foreign exchange losses being accumulated in Myanmar from a humanitarian aid operation for Cyclone Nargis victims but noted that any loss was 'unsustainable.'

UN humanitarian chief John Holmes, who visited Myanmar Tuesday to Thursday to access international relief operations there, acknowledged Thursday that the government's unique foreign exchange controls were posing a 'significant problem.'

Under Myanmar's exchange controls, foreign agencies and companies that bring in dollars to the country must purchase foreign exchange certificates (FECs) at state banks that are then used to buy the kyat currency.

The system has been in places for decades as a means of assuring some hard currencies get into government banks instead of flowing into the ubiquitous black market.

While the FEC and dollar exchange rates in kyat used to be similar, over the past months, the FECs have devaluated up to 20 to 25 per cent against the dollar-kyat rate, meaning a foreign exchange gain is being made by state-run Myanmar banks.

'A lot of the assistance we supply would be purchased overseas, so there is no foreign exchange loss on that,' said Daniel Baker, the Myanmar-based representative for the UN Office for the Coordination of Humanitarian Assistance.

Baker said the UN estimated that its exchange rate loss on FECs was small, but any loss was likely to be sensitive, given the regime's pariah status among Western democracies.

'In the long run, it's not sustainable because the donors are not going to give us money if they know they are going to lose a percentage to the government,' Baker said at a press conference in Bangkok.

Myanmar, also known as Burma, is under economic sanctions by the United States, Canada and most European countries because of its atrocious human rights record and refusal to introduce democratic reforms.

Humanitarian aid to the country is often given on the condition that it bypasses government agencies.

'I think they [government officials] understand the problem, and they are working with us to find some kind of a solution,' Holmes said at a press conference Thursday night.

The United Nations earlier this month issued a flash appeal for 480 million dollars in humanitarian aid for about 2 million victims of Cyclone Nargis, which smashed into Myanmar's central coast on May 2-3, leaving about 140,000 dead or missing.

International efforts to extend aid to victims of the cyclone were initially hampered by the ruling military regime, which imposed bureaucratic obstacles to the inflow of emergency relief and aid workers to the country in the immediate aftermath of the catastrophe.

The aid flow was speeded up considerably after the establishment of a tripartite mechanism that included representatives from the Association of South-East Asian Nations, the UN and the Myanmar government in early June.

The UN has insisted that all of its relief go directly to the communities in need and is handled by UN staff or the non-governmental organizations with which it cooperates.